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Stochastic leverage effect in high-frequency data: a Fourier based analysis

Imma Valentina Curato and Simona Sanfelici

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Abstract: We analyse the stochastic leverage effect, which is defined as the instantaneous correlation between the returns and their related volatility increments, in a stochastic volatility model set-up. We define a novel estimator of the effect which is based on a pre-estimation of the Fourier coefficients of the return and of the volatility process as defined in Malliavin and Mancino (2002). We establish the consistency of the estimator and we analyse its finite sample performance in the presence of microstructure noise contamination. When applying our methodology to real data, our results provide evidence of the presence of the stochastic leverage effect.

Date: 2019-10, Revised 2020-08
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Handle: RePEc:arx:papers:1910.06660